A Mining Boom has caused Gold to fall while Gasoline continues to Rise

Posted by PITHOCRATES - June 2nd, 2013

Week in Review

Gold and oil share something in common.  We price both of these commodities in U.S. dollars.  Which makes it difficult to hide inflation in these commodities.  Food companies can shrink package sizing to keep from having to raise their prices to factor in inflation.  But you can’t do that when you sell oil by a fixed quantity.  A barrel.  Or gold.  Which we sell by the ounce.  Which means if you depreciate the dollar (with quantitative easing where we print money to buy bonds to increase the money supply so as to lower interest rates to encourage people to borrow money and buy things) you have to increase the price of these commodities.  Because if you make the money worth less it will take more of it to buy what it once bought.

But gold and oil also have a major difference.  While an increase in the price of gold encourages gold mines to bring more gold to market environmental concerns have prevented people from bringing more oil to market.   It is because of this that the price of gold has fallen while gasoline prices are rising again (see The Gold Standard by SARAH MAX posted 6/1/2013 on Barron’s).

Gold prices rise in times of economic malaise—hence its 23% rise in 2009 and 27% rise in 2010. When prices are rising, mining stocks have historically outperformed the physical asset. Yet gold-mining stocks have lagged over the past few years, even before the price of gold plummeted from its August 2011 high of roughly $1,900 a troy ounce to less than $1,400 today. “The main reason is cost inflation,” says Foster, explaining that a global mining boom has driven up the costs of labor and materials, while forcing miners to look farther afield for new gold deposits.

As the government inflates the money supply it reduces our purchasing power.  This erodes the value of our savings.  Making the money we worked hard for and put in the bank to pay for our retirement unable to buy as much as we hoped it would.  This is why people buy gold.  Because gold will hold its value.  If they increase the money supply by 20% the price of gold should rise, too.  Close to that 20%.  So when the Federal Reserve finally abandons their inflationary policies people can sell their gold and put their retirement savings back into the bank.  Adjusted, of course, for inflation.

The price of gold has fallen despite the Fed’s quantitative easing still going strong.  So if the dollar is worth less how come it now takes fewer of them, instead of more of them, to buy a given amount of gold?  Supply and demand.  With the high gold price people mined more gold and brought it to market.  Increasing the supply.  And lowering the price.  But because the Fed is still depreciating the dollar costs continue to rise.  Making it more costly for these mining companies to mine and bring gold to market.  Reducing their profits.  And the cost of their stock.

If only the oil business was free to operate like this.  For with the Fed depreciating the dollar they’re raising the price of a barrel of oil.  Making it attractive to bring more oil to market.  But wherever it can the federal government has shut down oil exploration and production.  To appease the environmentalists in their political base.  So, instead, gasoline prices continue to rise.  While gold prices fall.  And the dollar continues to depreciate.  Which will one day ignite a vicious inflation.  Much like it did in the Seventies.  And then it will take a nasty recession to get rid of that vicious inflation.  Like we had in the Eighties.  But at least in the Eighties we had one of the strongest and longest economic expansion follow that nasty recession.  Thanks to a strong dollar.  Low taxes.  And a reduction of regulatory costs.  Something the current administration clearly opposes. So we’ll probably have the inflation.  And the recession.  But not the economic expansion.  For that we may have to wait for the next Republican administration.



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Britain Shutting Down Coal and Nuclear Power and Raising Taxes for Green Energy

Posted by PITHOCRATES - January 7th, 2012

Week in Review

Let’s take a ride.  In a time machine.  Let’s go into the future.  And see where America will be in the green energy future (see Double whammy from green taxes: Families will have to pay more for fuel and flights by Sean Poulter and Kirsty Walker posted 1/3/2012 on Mail Online).

Britain’s existing nuclear power plants are due to close within a few years.

As a result, the country’s nuclear capacity will fall by  75 per cent.

A number of coal-fired plants are also set to shut, as the Government strives to meet EU targets for reducing carbon emissions.

Wind farms – funded by green taxes on homes and businesses – will not be able to cover the resulting energy shortfall, Mr Lodge warns.

They’re shutting down coal and nuclear power.  And raising taxes to pay for green energy.  Which is erratic at best.  Sometimes the wind just doesn’t blow.  Which is the reason steamships replaced sailing ships.  Because man-made steam was more reliable than wind.  Far more reliable.  Which means Britain’s energy will be as reliable as the wind.  And as they suffer brownouts and blackouts there will be a scramble back to those more reliable sources.  Coal and nuclear.

Government plans to penalise power firms that use coal to generate electricity – by imposing minimum prices – will effectively make it uneconomic to continue mining in the UK.

This ‘will result in over one billion tonnes of economically recoverable UK coal reserves becoming stranded’, Mr Lodge says.

As if the brownouts and blackouts won’t be bad enough.  They’re going to shut down the mining industry.  And eliminate a lot of union jobs.  During which I doubt the unions will be whistling a happy tune.  Yeah, that’s right.  Green energy is anti-union.  I mean, you don’t have to mine wind or sun, do you?

It warns: ‘Britain risks becoming yet more dependent on foreign gas and unmanageable renewable energy to generate electricity.

‘Consequently, Britain’s 26million households, who spend around £20billion a year on energy, will face higher bills at a time of falling household income.’

Lost jobs and higher bills.  Gee, it just keeps getting better and better.

The Civitas report, also released today, focuses on the EU Emissions Trading System, which is designed to curb carbon dioxide emissions from aircraft engines. The directive came into force on January 1.

The think-tank found that related charges will cost airlines £1billion a year – most of which will be passed on to businesses and consumers through higher prices.

Airlines are now required to buy a ‘permit to pollute’ to cover the cost of their carbon emissions – with extra fees for those who exceed their emissions limit.

But in a damning assessment, Civitas  researcher David Merlin-Jones says  the scheme will line the pockets of energy bosses and banks while doing little to help the environment.

So as British families become impoverished for this green energy nonsense others will be getting rich off of these permits to pollute.  This from the nation that gave us the Industrial Revolution.  Representative government.  Agricultural advances.  And a lot of other things that brought the world into the modern age.  My God, what has happened to Britannia?

How is it that the nation that did more than most for the common people is taking such a large crap on the common people?  Figuratively, of course.  But the worse thing is that there are some in America that want to follow them.  And if the whole Western world gives in to this green energy nonsense there will no longer be a Western world.

Sad.  Because the UK is better than this.  As is America.  At least when they were conservative.



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